GBP/USD Forecast: Pound Sterling could turn south in case US NFP beats expectations

GBP/USD fluctuates above 1.2600 after posting small losses on Thursday.
March jobs report from the US could drive the pair's action ahead of the weekend.
The pair needs to clear 1.2670 to attract technical buyers.

Eren Sengezer FXStreet

GBP/USD advanced toward 1.2700 during the European trading hours on Thursday but reversed its direction in the American session to end the day with small losses. The pair holds comfortably above 1.2600 early Friday as market participants await labor market data from the US.

After suffering large losses against its major rivals in the first half of the week, the US Dollar gained traction in the second half of the day on Thursday.

Wall Street's main indexes turned south after the opening bell and safe-haven flows helped the USD find demand. Additionally, hawkish comments from Federal Reserve (Fed) officials caused market participants to reassess the probability of a Fed policy pivot in June and provided an additional boost to the currency.

Minneapolis Fed President Neel Kashkari said that he wonders if the Fed should cut rates at all this year if inflation continues to move sideways, while Richmond Fed President Thomas Barking argued that it is difficult to reconcile the current breadth of inflation with the progress the Fed needs to see for a reduction in interest rates.

Later in the day, the US Bureau of Labor Statistics (BLS) will publish the jobs report for March. Nonfarm Payrolls (NFP) are forecast to rise 200,000 following the 275,000 increase recorded in February. The immediate reaction to the could be straightforward, with an upbeat reading supporting the USD and a disappointing print hurting the currency, unless there are significant revisions to previous prints.

In case the data arrives near the market expectation, investors could react to the wage inflation data. On a yearly basis, Average Hourly Earnings are forecast to rise 4.1%, below the February's growth of 4.3%.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator holds slightly above 50 and GBP/USD closed above the 200-day Simple Moving Average (SMA) for the second straight on Tuesday. The pair, however, failed to clear the 100-day SMA at 1.2670.

In case GBP/USD flips 1.2670 into support, technical buyers could show interest. In this scenario, 1.2710 (Fibonacci 50% retracement of the latest downtrend) could be seen as first resistance before 1.2750 (Fibonacci 61.8% retracement).

On the downside, 1.2620 (Fibonacci 23.6% retracement) could be seen as interim support before 1.2590 (200-day SMA).

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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